Posts in category: Blog

OIG Issues Advisory Opinion Relevant to Electronic Health Record Providers and Laboratories

OIG issued its advisory opinion No. 14-03 today.

Background: A publicly traded clinical laboratory (“Lab”) receives a substantial amount of its business through referrals from physicians (“Referring Physicians”) ordering the Lab’s tests. The Lab entered into an operating agreement with an EHR Provider (Provider), which allowed the Referring Physicians to receive test results from the Lab through the Provider’s services and to have those test results incorporated into their patients’ electronic charts. The Referring Physicians could also use the Provider’s services to generate and transmit an order to the Lab via facsimile, but they could not use the Provider’s services to send an electronic order that automatically would be incorporated into the Lab’s information system.

Proposed Arrangement: Under the proposed arrangement, Referring Physicians may now use the Provider’s service to electronically transmit and generate orders to, and receive results from, the Lab. Each time a Referring Physician generates an order for the Lab using the Provider’s services, the Lab is displayed as an “in network” Lab. With the “in network” designation, the Lab pays the Provider a per-order fee in return for each set of tests a Referring Physician orders from the Lab using the Provider’s services. However, if a Referring Physician orders a test through Provider’s service from an out of network laboratory, i.e., not the Lab, then the Referring Physician must pay a transmission fee of $1.00 to the Provider for per order. The Per-Order Fees are not capped, and decrease as the number of test orders the EHR Provider transmits to Requestor increases.

Analysis:  OIG first emphasized that “the efficient exchange of health information between health care providers, practitioners, and suppliers is a laudable goal,” but noted that “when the exchange takes place in the context of patient referrals,” we must determine whether the methods used to obtain that goal implicate the anti-kickback statute.

OIG then determined, without considering any of the applicable safe-harbors to the anti-kickback statute, that the proposed arrangement posed more than a minimal risk of fraud and abuse, and, in doing so, reinforced the following points:

• The per order fee paid by the Lab for each test a Referring Physician orders using the Provider’s services relieves the Referring Physicians of a financial obligation;
• Under this arrangement, Referring Physicians have the option to pay a transmission fee or avoid paying that same fee based on their choice of laboratory, and therefore, “this fee structure could potentially influence Referring Physicians’ referral decisions in a material way;”
•  The “arrangement appears to permit [the Lab] to do indirectly what it cannot do directly; that is pay compensation to the Referring Physicians…in return for the Referring Physicians’ laboratory test referrals”;
• Because the Lab offers additional software that Referring Physicians can use to electronically submit orders to the Lab, which are thereafter incorporated into the Referring Physicians’ patient charts, the arrangement does not “provide any additional technological benefits to the [Lab];” and
• Although the per fee charge is minimal and such fees are unlikely to influence a physician’s referral decisions in any meaningful way, “the risk that the per fee could influence a referring physician’s decision-making increases as the number of referrals increases and physicians typically order laboratory tests with considerable frequency.”

Takeaways: The recent OIG opinion demonstrates that healthcare providers, including diagnostic and clinical laboratories, would be well-advised to evaluate all existing relationships with IT vendors and Electronic Health Records providers. Indeed, according to the opinion, healthcare providers should carefully analyze all indirect compensation arrangements or agreements with third party vendors, to ensure that the agreement or relationship does not relieve, or have the potential to relieve, a referral source of a financial obligation since such arrangements implicate the anti-kickback statute. Furthermore, the opinion shows that even a “nominal” fee of $1.00, which may be reduced, may implicate the anti-kickback statute when there is a potential for an increase in referrals. Lastly, the opinion illustrates that OIG will not hesitate to find that a proposed arrangement involving physicians and clinical laboratories poses more than a minimal risk of fraud or abuse since physicians generally order from labs with “considerable frequency.”

What is the Physician Payments Sunshine Act?

The Physician Payment Sunshine Act, part of the Affordable Care Act, was passed by Congress in 2010. Under the Sunshine Act, manufacturers of drugs, medical devices, biological, or medical supplies, and group purchasing organizations, are required to report all financial transactions/transfers of value to physicians and teaching hospitals. Ownership and investment interests of physicians and their immediate family members in these companies are also reportable. Manufacturers are required to submit the compiled reports to the Center for Medicare and Medicaid Services (CMS) on an annual basis. The information will then be made available on a public, searchable website. The program implementing the requirements of the Act is called “Open Payments” and will be administered by CMS.

Who Needs to Report

1. Entities operating in the U.S. who are engaged in the production, preparation, propagation, compounding, or conversion of medical devices, medical supplies, biologicals, and drugs.
2. An entity under common ownership (5% indirect or direct) with an entity engaged in the production, preparation, propagation, compounding, or conversion of medical devices, medical supplies, biologicals, and drugs and which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.
3. GPO’s including physician owned distributors

What is Assistance or Support?

Providing a service or services that are necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.

What is Operating in the U.S.?

1. Has a physical location within the United States or in a territory, possession, or commonwealth of the United States; or
2. Otherwise conducts activities within the United States or in a territory, possession, or commonwealth of the United States, either directly or through a legally-authorized agent. 
3. Includes foreign entities with a business presence or operations in the U.S.
4. Includes U.S. entities making payments to foreign entities which are then transferred to a physician, teaching hospital, or other covered entity

Who Is Excluded

1. Entities meeting the definition of “applicable manufacturer” that are engaged in the production, preparation, compounding, or conversion for the solely for use by or within the entity itself or by the entity’s own patients.

2. Wholesalers, distributors, repackaging entities

3. Pharmacies and compound pharmacies as long as the compound pharmacy meets certain conditions.

What must be reported?

1. Transfers of value made by a GPO or an applicable manufacturer (defined as something with “discernible economic value,” i.e, lunch or dinner or concert tickers) in connection with or in reference to a medical device, medical supply, drug, or biological to a physician or a teaching hospital (includes an academic medical center)
2. Indirect payments or other transfers of value made by a GPO or an applicable manufacturer  to physicians, teaching hospitals or physician owners or investors through a third party where the entity requires, instructs, directs, or otherwise causes the third party to provide the payment to a physician, teaching hospital, or a physician owner or investor.
3. Investment interests held by physicians (or their immediate family members) in applicable manufacturers
4. Physician ownership and investment interests in GPOs

What Drugs, Biologicals, or Devices are covered?

1. Drugs or biologicals are only covered if they require a prescription to be dispensed
2. Medical devices that require premarket approval or premarket notification pursuant to applicable FDA regulations
3. Devices, supplies, biologicals, and drugs are only covered if payment may be made through a federal healthcare benefit plan or a state plan (or a waiver of such plan), either separately  or as part of a bundled payment plan or system.

What must be reported in Phase I?

Phase I reporting includes the reporting of aggregate 2013 payment and investment interest data to CMS.

Phase II (May 2014)

Phase II reporting will begin in May of this year and will require applicable manufacturers and GPO’s to provide CMS with more specific, particularized payment data with respect to “transfers of value.”

Conclusion

14 days remain for group purchasing organizations (GPOs) and applicable manufacturers of medical devices, medical supplies, biologicals, and drugs to file their Phase I report with the Center of Medicare and Medicaid Services through the Open Payments system. Although the deadline is creeping closer and closer, it is not too late to make a good faith effort to comply with the new Rule. Indeed, entities that are required to file a report would be well-advised to do so since penalties for failing to report are severe. Entities that knowingly fail to file a report may be fined up to $1,000,000.00 whereas entities that fail to report a payment may be fined up to $10,000.00 for each payment they fail to report.